How Arrival intends to disrupt the delivery van market

Arrival, a British startup that plans to offer electric vans and buses beginning later this year, will join U.S. and Chinese EV companies with billion-dollar valuations when it merges with a special purpose acquisition company (SPAC) in a deal that will value it at about $5.4 billion. With backing from investors including Hyundai, Kia and the logistics giant UPS, Arrival says it will sell electric vans at the price of an equivalent diesel model, built in flexible “microfactories” to keep costs down. Avinash Rugoobur, Arrival’s president and a former head of strategy at General Motors’ Cruise self-driving division, explained to Automotive News Europe Correspondent Nick Gibbs why that multibillion-dollar valuation is justified.  

Arrival is about to list in the U.S. via a SPAC. Are you worth $5.4 billion?
Absolutely. If you see who has invested -- Hyundai and Kia, UPS, Blackrock -- that is really about technology and the capability of what we are doing. What matters is that the market is huge. The whole global vehicle parc will be transformed to electric. We are making commercial vehicles, but even that is $430 billion worth of vans and buses globally. The product we are creating will be best in class in terms of weight and total cost of ownership, and at a price point that is competitive with diesel. That is an inflection point. It’s a no-brainer.

What can Arrival offer that others can’t?
We have a lot of our own technology and patents. We are going to produce vehicles at microfactories. Because [our microfactories] are profitable at a lower volume you can start to create much more customizable vehicles for the local places you serve. We are also working to make the vehicle upgradable over its life cycle. Let’s say autonomy is coming in five or 10 years -- you are kind of stuck if you have got the existing asset. With Arrival, you can upgrade components [to give them autonomous capabilities]. Arrival has lots of technology advantages, but the approach itself is fundamentally different. 

How will your microfactories work?
We looked at how we can make an electric vehicle price-competitive with diesel and not by relying on just the battery cost coming down. To do that, we had to change the way the vehicle was manufactured. The Henry Ford model has worked well, but we said, "Let’s question that. Does it need to be one assembly line?" When you take the lid off one of our plants, instead of a line, you see cells. Each cell has a set of robots performing a particular function. There is no welding, which reduces the number of operations needed to produce the vehicle. Over time, we can upgrade the cells’ capability. The cell is like a product that can be optimized over time, and not a static line that operates at one speed.

How does the design of the vehicle help that production process?
For this to work, all layers of vehicle have to be in harmony, so we designed and engineered all the components ourselves. They all plug into the skateboard chassis. The body is polypropylene. It comes to the warehouse as a fabric, then we can mold it in into a more durable and lighter panel than steel, and we can also do it in color. That takes out the paint shop and metal stamping, removing two big [capital expenditures]. The battery cells come in from suppliers, but battery modules are produced on site.

What capacity does Arrival need to be profitable? 
The factories are optimized to do 10,000 vans a year or 1,000 buses a year on two shifts, so there is capacity to flex up the production rate. Van factories can be profitable with thousands of vehicles rather than hundreds of thousands. It’s a different payback model. The first two factories are a van plant in Bicester, near Oxford, England, and a bus plant in Rock Hill, South Carolina.

What does a microfactory cost?
About $40 million to $50 million, and you can deploy it in six months. Because it’s so small, we can bring it to cities. Governments are interested, because it is bringing production back to cities.

How does that compare with a conventional, large factory?
We are about half the capex and one-tenth the footprint. 

Arrival is buying battery cells from LG Chem in South Korea. What price would persuade you to buy locally, for example, in the UK?
One of the tenets of the microfactory is that you can use local suppliers, saving on transportation costs and import duty but also helping the local economy. If the UK gets a battery factory, we would absolutely look at that. The price would have to be comparable with what we get from LG Chem, but we are paying duty and logistics on that, so there’s a point at which it might make sense if the per-unit price is a little higher.

When do you start production?
The bus goes into production this year, the van in 2022. The next step is to scale, and scaling is a lot less capital intensive because of these microfactories than it would be for traditional automotive companies.

What segment does your van cover?
It's a typical large delivery van, so aimed at the 2-ton Ford Transit. We will have two products in 2022, the 2-ton vehicle with a 2-ton payload, and a 7-ton vehicle mainly for the U.S.

What will the price be?
We have got a 2-ton payload but a 40 percent improvement on cargo volume [compared with an equivalent diesel van], so the price point will represent what you can carry. It will be a similar price to diesel and cheaper to run.

When will you be profitable?
Once we scale up we expect to be cash-flow positive by 2023. The risk is a lot different than needing $1 billion to build one factory and needing to sell 100,000 units to be profitable.

StreetScooter, which was backed by the German postal service, took a similar light-touch approach to building electric vans but failed. Why?
Automotive is a difficult game and it takes a lot of work to be successful. Again, I think we are just doing it differently. I have been in the industry for the last couple of decades, and I have never seen a company with this approach and this deep technology in fields that are needed. 

What do Hyundai and Kia get from their association with Arrival?
We are co-developing vehicles where we are combining our technologies. They have got global scale and global suppliers.

What tech of yours do they like?
They looked at the company as a whole, this new production method, components designed by us, the skateboard chassis. There is plenty there that they find interesting and they chose to invest 100 million euros ($123 million) in Arrival 12 months ago. 

How important is the driver?
The driver is the critical part of this. We are giving them proper safety technology such as e-mirrors [with cameras and screens] and ADAS , as well as great visibility and ergonomics. We have designed the van around UPS operations [the delivery company has a standing order for 10,000 Arrival vans]. So, if a driver is holding a box, he is able to use his elbow or facial recognition to open a door. That can only be done if you are designing from the ground up.